CSX’s Q4 2016 Earnings Review: Improving Business Conditions And Efficiency Improvements To Boost Results Going Forward

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CSX released its Q4 2016 results on January 18 and conducted a conference call with analysts the next day. [1] As expected, improved shipments, pricing, and the impact of the company’s productivity improvement initiatives helped boost the company’s operating results, as illustrated by the significant improvement in the company’s operating ratio. A one-time expense related to debt repurchases weighed on the company’s GAAP EPS figure, partially offsetting the impact of the operating gains on the company’s bottom line.

A recovery in coal shipments industry-wide helped drive the recovery in CSX’s coal shipments. Rising natural gas prices led to a recovery in demand for coal from utilities. Moreover, CSX benefited from improved pricing, driven partially by the company’s improved service levels. [1] In addition, the company’s productivity improvement initiatives helped boost the company’s operating ratio.

Going forward, CSX is expected to benefit from rising shipment volumes. Coal shipments are expected to benefit from an improvement in demand from utilities. Steel shipments are expected to benefit from reduced competition from unfairly traded steels post the imposition of antidumping duties on steel imports from a number of countries in 2016 by U.S. authorities. [2] Metal shipments, in general, will benefit from an improved demand outlook with an increase in infrastructure investment proposed by the incoming White House administration. [3] In addition, the company’s efficiency improvement initiatives are expected to boost the company’s results to the tune of $150 million in 2017. [1] Thus, a combination of improved business conditions and the company’s cost efficiency improvement initiatives should translate into improved results in the coming quarters, much like the final quarter of 2016.

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CSX Q4 2016 Earnings

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for CSX

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Notes:
  1. CSX’s Q4 2016 Earnings Call Transcript, Seeking Alpha [] [] []
  2. US issues final antidumping duties for hot-rolled coil steel from seven nations, Platts []
  3. China Trumps Trump When It Comes to Infrastructure, Bloomberg []